Court File and Parties

COURT FILE NO.: CV-11-3552-00 DATE: 2019 01 16 CORRECTION NOTICE: 2019 03 26

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

BALBIR MANN D. D’urzo, Counsel for the Applicant Applicant

• and -

JORDAN CONNOR JEFFERSON and JEFFREY JEFFERSON M. MacDonald, Counsel, for the Defendants Defendants

HEARD: January 11, 2019

Trial Ruling: Number 1

CORRECTION NOTICE

March 26, 2019: Paragraph 33 reads: In that case, the Plaintiff argued that he should be able to claim the interest as an expense on the basis that he should be made whole for all losses or expenses incurred as a result of the accident. The Defendant argued The correction is the addition after argued : that the interest on loans to cover personal expenses was too remote, and not foreseeable.

Trimble, J.

[1] In this jury trial, Mr. Mann claims compensation for serious, permanent injuries he claims to have suffered as a result of a motor vehicle accident which occurred on 8 February 2011. He was in an earlier accident on 15 October 2008, which is not the subject of this action, except the extent to which injuries overlap between the two accidents.

[2] During the partially completed examination in chief of Mr. Mann, his counsel sought to examine Mr. Mann concerning two litigation loans he took out since the 2011 accident, and to introduce into evidence the two loan agreements and discharge statements. The Defendants objected.

[3] On 11 January, I ruled with brief oral reasons that this evidence was not admissible, with written reasons to follow. These are those reasons.

The Issue:

[4] Is evidence (oral and documentary) concerning loans taken by the Plaintiff in this personal injury action admissible in evidence at trial?

Result:

[5] Evidence concerning post-accident loans that the Plaintiff took to pay medical, rehabilitation, or other expenses of any kind is not admissible since those losses are too remote, not reasonably foreseeable to the Defendant at the time of the accident, and therefore, not recoverable as damages.

Background:

[6] In his testimony, Mr. Mann told the jury that at the time of the 2011 accident, Mr. Mann had been off work since an earlier automobile accident on 15 October 2008. From 2008 onward, the family relied on Mrs. Mann's income (which ended in 2014 when she left work due to disability), and assistance from his two sons (aged 26 and 29) who live with them. He received some income replacement benefits from his insurer, and on 22 March 2013 settled the accident benefits claim for each of the 2008 and 2011 accidents for $62,500, for a total of $125,000.

[7] Mr. Mann also said that in order to survive financially, he has borrowed from his credit cards, his personal line of credit, and taken out loans. The jury has not heard evidence on the extent of the borrowing or the terms of the borrowing. He said that he used some of this borrowed money to fund his medical and physiotherapy treatment.

[8] In the absence of the jury, Defence counsel advised that Plaintiff's counsel wished to introduce into evidence loan documentation and discharge statements for two 'litigation loans' dated June 28, 2011 and December 7, 2012. I invited argument as to the admissibility of such evidence, and if admissible, as to the probative/prejudice balancing.

The First Loan:

[9] By agreement dated June 28, 2011 (signed June 30), 4 months after the 2011 accident, Mr. Mann entered into a loan agreement with Bridgepoint Financial Services Limited Partnership 1, to borrow $5,000.00 at the rate of 24%. The loan was payable "…from the proceeds of settlement of the Borrower's accident benefit, tort and any other incidental claim for damages … arising out of a motor vehicle accident which took place on October 15, 2008…. " The loan was to be repaid, first, from any settlement or judgment in the actions commenced arising from the accident, and thereafter, by Mr. Mann, since "… the Borrower shall remain fully obligated to repay any portion still owing on the Loan, plus ongoing interest … until the Loan is fully repaid.” Mr. Mann executed an irrevocable direction to his law firm with respect to payment from settlement or judgment and granted PPSA registerable security in the proceeds of the litigation.

[10] As of January 4, 2019, the discharge amount, including principle and interest, is $27,669.04, with daily interest thereafter of $18.25.

The Second Loan:

[11] By agreement dated December 7, 2012 (signed December 11) Mr. Mann entered into a loan agreement with Settlement Lenders Inc. to borrow $12,500 at a rate of 19.95% for the first year and 29.95% for every year thereafter. $2,500.00 was paid to someone as a broker's fee, with Mr. Mann receiving $10,000.00. He irrevocably assigned to the lender a first charge against any settlement or judgment "… in the claim being prosecuted by the Firm arising from a motor vehicle accident occurring on or about February 8, 2011… " and also executed an irrevocable direction instructing the law firm to make payment from any recovery in the action. Mr. Mann executed a separate promissory note for the full amount which provided that payment would be made on the earlier of settlement or one month after demand for payment. By this Promissory Note, Mr. Mann is responsible for any shortfall between recovery from any settlement or judgment and his obligation under the loan.

[12] As of January 8, 2019, the discharge amount, including principle and interest, is $68,349.62, with daily interest thereafter of $56.04.

The Positions of the Parties:

1. The Plaintiff

[13] The interest on the loans (if not the principle, too) is, or should be recoverable as damages. Therefore, evidence concerning the loans is admissible.

[14] Why is the loan recoverable? The loan was taken out to mitigate damages, to pay for expenses arising from the accident, and to defray living expenses until trial. The Defendants have notice of this aspect of the claim in the general wording of the Insurance Act, as well as the general wording of the Statement of Claim. The fact that a Plaintiff has to borrow money to survive is just as foreseeable to the Defendant as other losses which are either unknown or uncertain at the time of the accident, but which develop thereafter and are awarded as foreseeable at trial as injuries develop and the damages crystalize; for example, loss of income, home renovations, future care and medical costs, and housekeeping.

[15] As a matter of public policy, the principal and interest on these loans should be recoverable. They are loans of last resort, taken when a Plaintiff has no other funds available. Everyone in the litigation process knows that it take 5 to 8 years for an action to settle or be tried. Defendants should be able to anticipate the hardship caused to Plaintiffs by the time it takes for an action to go to judgment, and that in the interim, Plaintiffs have to accrue debt to live. The jury needs to know what the Plaintiff is up against in suing for damages, and it is prejudicial to the Plaintiff to not have the jury know this.

[16] With respect to his reference to the "Defendant", Plaintiff's counsel conceded that he was referring to the Defendant's insurer, not the party named on the Statement of Claim.

2. The Defendant

[17] The Defendants say that the loans are not recoverable as damages, and therefore, any details of the loans are relevant to any issue in the action, and not admissible into evidence. They say this for a number of reasons. First, to award anything for the principle would be double recovery. Amounts paid for medical or rehabilitation expenses are recoverable as special damages, and any amount used for living expenses are recoverable as loss of income. Interest on those items is already provided for by pre-judgment interest.

[18] Second, the Defendants say that the Plaintiff's need, arising long after the accident, to borrow money to fund litigation, rehabilitation or recovery, or personal or living expenses is not foreseeable to the Defendant at the time of the accident, and not recoverable. The "Defendant" to which the Defendants refer are the individual Defendants sued in the action, not their insurer.

[19] Third, public policy weighs against including in damages litigation loan principle and interest. The effect of including theses sums as damages would be to a) negate the pre judgment interest sections of the Courts of Justice Act, and b) encourage Plaintiffs to fund their litigation through loans let at exceedingly high interest rates.

Analysis:

a) Foreseeability:

[20] For evidence to be admissible at trial, it must be probative of some issue in the action. In order for evidence concerning litigation loans to be admissible at trial, the loans themselves must be recoverable as damages.

[21] Neither the principle nor interest on litigation loans are recoverable as damages. They are too remote.

[22] As a general rule, it is not foreseeable to the Defendant, at the time of the loss, that litigation loans were necessary. In Mustapha v. Culligan of Canada, 2008 SCC 27, at paragraph 13, the Supreme Court of Canada defined ‘reasonably foreseeable’:

The Parties raise the question of whether a reasonably foreseeable harm is one whose occurrence is probable or merely possible. In my view, these terms are misleading. Any harm which has actually occurred is "possible"; it is therefore clear that possibility alone does not provide a meaningful standard for the application of reasonable foreseeability. The degree of probability that would satisfy the reasonable foreseeability requirement was described in the Wagon Mound (No. 2) as a "real risk", i.e. "one which would occur to the mind of a reasonable man in the position of the defendan[t]…and which he would not brush aside as far-fetched."

[23] What does the jurisprudence say about recovery of litigation loan principle or interest as damages?

[24] There are few cases on the question of recovery of litigation loans as damages, all of which support the conclusion that principle and interest on loans the Plaintiff takes after the accident are too remote and/or not foreseeable to the Defendant to be recoverable as damages.

[25] In Millman v. Leon's Furniture Ltd., [1983] O.J. No. 928 (Ont. Co. Ct), a dismissal case, the Plaintiff "…sought to recover as damages interest paid on money borrowed to pay expenses; " (para. 8). In one brief paragraph (para. 16), the learned County Court Judge dismissed the claim because a) special damages must be strictly proved and were not, and b) even if proved, " it is somewhat remote and not an expense to be visited upon the Defendant in these circumstances. "

[26] In Campbell v. Swetland, 2012 BCSC 423 (B.C.S.C.), Ms. Campbell was catastrophically injured in an automobile accident. As part of her damages she claimed interest on loans she took after the accident to complete renovations to her home necessary to accommodate her injuries, and to cover her living expenses given her inability to work because of the accident. The Defendants objected on the basis of remoteness (foreseeability).

[27] Wong, J., reviewed such law as existed at the time and held that the loss was not foreseeable. He began his review with Leisbosch, Dredger v. Edison S.S. (Owners), (1933) A.C. 449 which held that the competing principles in damages are restitution in integro and losses arising from the financial circumstances of the Plaintiff. At paragraph 95, Wong, J. cited Lord Wright in Leisbosch at page 460, wherein the Lord Wright held that where the Plaintiff's personal financial circumstances operated as a separate and concurrent cause of a post-accident loss, extraneous to the tort, the Plaintiff's impecuniosity was not traceable to the tort, and out of the legal purview of the consequences of the tortious acts.

[28] Citing Millman (among other cases), Wong, J. noted that in employment cases, interest paid on loans taken to meet expenses while between jobs is not recoverable as special damages as they are not foreseeable.

[29] I pause to note that where an employer terminates an employee thereby ceasing the income stream from that employment, one might argue that the Plaintiff’s impecuniosity would be more foreseeable to the employer/Defendant, than the Defendant in an automobile accident.

[30] Wong, J. also reviewed cases in general contract law that provide that losses arising from the Plaintiff's impecuniosity or lack of financial resources are not recoverable (see: Freedhoff v. Pomalift Industries (1971), 19 D.L.R. (3d) 153 at p. 158 (Ont. C.A.) and Roopam Fashions v. Greenwood Ins. and Boco, (2008) BCPC 0254).

[31] In Isbister v. Delong, 2014 BCSC 1947, the B.C. courts considered, again, and declined, again, to award interest on litigation loans as damages because they were too remote. The Court noted that this was, in part, because the Plaintiff was entitled to pre-judgment interest on past lost income and past out of pocket expenses.

[32] In Persad v. Silva, 2016 ONSC 6881, a more recent case to which no counsel referred me but which is available to them, Sanderson, J. took a different approach when denying the Plaintiff’s request to recover interest on a litigation loan the Plaintiff took from Bridgepoint as special damages for expenses incurred.

[33] In that case, the Plaintiff argued that he should be able to claim the interest as an expense on the basis that he should be made whole for all losses or expenses incurred as a result of the accident. The Defendant argued that the interest on loans to cover personal expenses was too remote, and not foreseeable.

[34] Sanderson, J., at para. 12 et seq. did not decide the issue on the basis of remoteness or foreseeability. Rather, she decided on the basis of either redundancy of the claim, or double recovery. The C.J.A. provided for pre- and post-judgment interest at a stipulated rate that addresses the loss of use of damages from the date the loss was incurred. Section 130 of the C.J.A. also provides the trial judge with discretion to set a different rate, which she declined to do.

[35] The Plaintiff relies on Leblanc v. Doucet et al., 2012 NBCA 88, at para 35 and 38 as support for his position. In Leblanc, the Court of Appeal noted that on the evidence before it, it was clear that the Plaintiff could not have financed the litigation himself, and therefore would not have been able to enforce his constitutional right to seek redress in the courts. Recovery of interest on litigation loans was a question of access to justice. Without the loans, the Plaintiff would have suffered a most unjust outcome - the settlement of the claim for a " pittance, or perhaps even its abandonment ."

[36] Leblanc is of little assistance. It, like all other cases cited other than those discussed above, addresses recoverability of interest on litigation loans as a disbursement, not as a head of damage. Recoverability of disbursements is determined based on disbursement recovery legislation, Rules of Court, and to an extent, the common law. I note that in Ontario, all cases have denied recovery of litigation loan interest as a disbursement (see, for instance, Poile v. Collins, 2015 ONSC 916).

b) Foreseeability Applied:

This motion concerning the admissibility of litigation loan evidence was argued during Mr. Mann’s examination in chief. Until that time, there is no evidence to support that either of the Jeffersons (or their insurer) ought reasonably to have foreseen Mr. Mann's personal financial situation, that he might need to borrow money after and as a result of the accident, the amount he might require, the range of interest rates available to him in the market, and the specific rate he might agree to, or be required to agree to pay. No evidence was led about Mr. Mann's personal financial situation other than he was in difficulty, and borrowed money, but that evidence was of the most general character. There was no specific evidence led concerning the details of his pre-accident financial situation and how that changed post-accident, except that in 2014 his wife lost her job because of disability. Finally, there was no evidence that parsed his alleged impecuniosity between the two accidents.

It is clear on the face of the first loan agreement that the money was loaned on account of the 2008 accident. Absent further evidence, if the interest on litigation loans was recoverable, it is unlikely that any of this expense was incurred because of the 2011 accident, and would not be recoverable in this action.

[37] On the face of it, the second loan was taken out on account of the 2011 accident. Absent further evidence, however it is unlikely that the need for that loan and the resulting expenses arose solely because of the 2011 accident. On the evidence before me at the time of my oral decision, if interest on litigation loans was recoverable, it is likely that this expense would have been apportioned between the accidents.

[38] Even if interest on the loans was recoverable as damages, I would not have made any significant award since Mr. Mann did not repay the loans when he should have, reasonably.

[39] The first loan said that it would be paid "…from the proceeds of settlement of the Borrower's accident benefit, tort, and any other incidental claim for damages, or any portion thereof, arising out of a motor vehicle accident which took place on October 15, 2008…. ".

[40] The second loan said that principle and interest are payable "…from the proceeds of settlement of or execution on a judgment in the claim being prosecuted by the Firm arising from a motor vehicle accident occurring on or about February 8, 2011… ." The word “claim” is not defined as being limited to the tort action. Although I do not decide the issue, using an expansive definition of “claim”, it could be argued that the "claim" included any claim pursued for any recovery arising from the 2011 accident, whether against a tortfeasor, Accident Benefit insurer, or disability insurer.

[41] On 22 March 2013, Mr. Mann settled his AB claim in each accident for $62,500.00, or a total of $125,000. The loans could have been retired at that time for less than $25,000. [^1] Mr. Mann testified that he used some of that money to buy medicine and treatment. There is no evidence as to how much was used for this purpose, how much was spent on other things, and how much remains. It is clear from the loan discharge statements that he did not use the AB settlements to discharge the loans. It is arguable that by not using the $125,000 he acquired in 2013 to repay the litigation loans, he is in breach of his loan agreements. In any event, by not repaying the loans when he settled the AB claims, he has failed to mitigate his loss in this regard.

Public Policy:

[42] Mr. Mann argues that public policy requires that these loan expenses be recoverable as flowing naturally and foreseeably from the tortfeasor’s actions.

[43] I disagree. Public policy suggests that interest paid on loans used to pay post-accident medical, therapy and personal expenses, should not be recoverable as damages. I say this for the following reasons:

1. Pre-judgment and post-judgment interest, statutorily imposed by the Courts of Justice Act indemnifies the Plaintiff's loss of use of money and out of pocket expenses at statutorily mandated rates. Permitting recovery of interest on loans would, in effect, nullify the pre-judgment and post-judgment provisions of the C.J.A. by allowing interest at the rates mandated by the lenders, which often exceed the mandated rates, and reasonable rates in the open market. In this respect, I concur with the reasoning of Lauwers, J. in Warsh v. Warsh, 2013 ONSC 1886 who addressed the same argument with respect to litigation loans being recoverable as disbursements. Lauwers, J., held that to allow interest on litigation loans recoverable as disbursements, nullifies section 128(4) of the C.J.A., which provides that pre-judgment interest does not accrue on costs;
2. Awarding interest on these loans as damages would allow the Plaintiff to recover through the back door, that which, on the current state of the law, is not recoverable as a disbursement;
3. The onus is on the Plaintiff to establish that he is impecunious. If he has assets that could have been utilized to assist in providing him with some financial assistance at much lower costs that interest rates on the loans, he must use those resources. In this case, to the date of my oral reasons, Mr. Mann led no such evidence other than his general statements;
4. Awarding interest on litigation loans is a public policy issue of significant import, and requires much more research than was possible over one night, and fuller argument than was possible in the middle of a jury trial. On this basis, had I jurisdiction to award interest on the loans as damages, I would have declined to do so;
5. Allowing a Plaintiff to recover as damages (or costs) interest charges would create an incentive for parties to borrow money at astronomical interest rates, far in excess of commercially available rates, to fund litigation related expenses, and pass these charges on to the tortfeasor; A similar issue was the focus of Murray, J.'s decision in Guiliani v. Regional Municipality of Halton et al., 2011 ONSC 5119. In that case, the Plaintiff sought to recover as a disbursement over $97,000 in interest on a $150,000 loan from Lexfund, for which the stated interest rate was 42%, and the effective annual rate was 51.10% when all fees were included. Murray, J. called the effective rate usurious. Murray, J. made other comments which apply, to a certain extent, to the question before me; including, "…the whole agreement, including the interest rates charged by the lender, allows the lender to make huge profits from the proceedings of litigation rather than from a commercially normative interest rate on a risky loan," (para. 52). "The concept of reasonableness governs the Court's treatment of disbursements. The interest payments owed by Ms. Guiliani to Lexfund are unreasonable. The Court will not require the Defendants to reimburse interest charges on the Lexfund loan…. To do otherwise would bring the administration of justice into disrepute and encourage predatory lenders whose business it is to extract unconscionable amounts of interest from vulnerable individuals." (at para. 57). "It is turning the world on its head to assert, as does Ms. Chittley-Young, that this is an access to justice issue that ordering interest payments on the Lexfund [loan] is reasonable. This loan agreement does not facilitate access to justice. This loan agreement does nothing to advance the cause of justice." (para. 56).
6. To permit these damages to be recoverable would increase the complexity of documentary discovery, and the time required at oral discovery and at trial, to explore the pre- and post-accident financial circumstances of the Plaintiff. It would open up a long argument at trial about mitigation, giving rise to such questions as: was the loan interest rate the best one available? Were there others? Did the Plaintiff need the loan? What assets could he or she have used to avoid the loan or as security for a lower rate? How much did the Plaintiff "need"? How did the Plaintiff spend it? Was it repaid? Why not? When ought it to have been repaid?

[44] The issue of increasing the complexity of the litigation by allowing a claim for litigation loan expense is not mere conjecture or speculation. The evidence between my oral ruling at the beginning of 11 January and the close of the day on 14 January has borne out my concern. I have reviewed some of the additional evidence, below. Because of my ruling, that evidence was not fully developed. I did not rely on this evidence in reaching my decision, but refer to it now as illustrative of my point on complexity. The evidence adduced after my oral ruling suggests that the evidence that would have been made relevant in this action by a claim for litigation loan expenses is significant, would require significant documentary and oral discovery, and require significant trial time.

[45] In Mr. Mann’s cross examination, Mr. Mann testified that he and his spouse owned an investment property which they bought off the plan in 2007, closed in 2009, and sold in June or July of 2018. They entered into the contract to purchase before the 2008 accident, then closed on the sale afterward. From the sale, the Manns received approximately $400,000.00, on a net basis, representing a $300,000.00 gain on their initial investment.

[46] Mr. Mann was not asked, and did not say why they did not cancel or try to get out of the contract to purchase the rental property thereby avoiding the expense, or why they decided to sell the house in 2018, and did not consider selling it earlier, thereby freeing up equity which might have obviated the need for the litigation loan.

[47] Between 2009 and 2014 (the last year for which Mr. Mann filed income tax returns) he declared on his tax returns gross rental income of between $7,000.00 and 18,000.00, and net rental income of between -$3,195 and $2,679.00. He indicated that he increased the rent in 2017 and in that year earned gross income of $20,400.00, and likely half that amount in 2018. He did not know the net rent for any period after 2014. It is unclear on the evidence to date whether Mrs. Mann declared any of the rental income on her tax return.

[48] He was not asked, and did not say what the expenses were that were claimed against the gross rental income.

[49] Mr. Mann stated that his current home is worth $800,000.00, and has a mortgage of approximately $112,000.00. He was not asked, nor did he say what his monthly mortgage payment was, what the interest rate was, what payments he had made since the first accident, and whether he attempted to extend his mortgage, rather than taking out a high rate litigation loan.

[50] In his evidence before my oral ruling, Mr. Mann indicated that in 2013 or 2014, his wife became unemployed due to disability arising from knee conditions. After my oral ruling, however, Mr. Mann testified that both he and Mrs. Mann applied for CPP disability benefits. Mr. Mann was not asked, and did not say whether he or his wife were granted a CPP disability pension.

[51] Before my oral ruling, Mr. Mann said that his adult children helped financially, but did not say to what extent. In his cross examination, Amrit Mann, the Manns’ eldest son, confirmed that he made a financial contribution to the household expenses. He was not asked, nor did he say how much he or his brother contributed, and with what regularity they made those contributions.

[52] For the above reasons, I hold that the litigation loan related expenses are too remote, and not reasonably foreseeable to the Defendants, and cannot be advanced as damages in this action. Therefore, evidence in relation to those loans is not relevant and cannot be admitted.

Trimble, J.

Released: January 16, 2019 Date Corrected: March 26, 2019

COURT FILE NO.: CV-11-3552-00 DATE: 2019 01 16 DATE CORRECTED: 2019 03 26 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Balbir Mann Applicant

• and - Jordan Connor Jefferson and Jeffrey Jefferson Defendants Trial Ruling Number 1 Trimble, J.

Released: January 16, 2019 Date Corrected: March 26, 2019

[^1]: To discharge the first loan, including 2 years of interest at 20% required $8,640.00. To discharge the second loan at 19.95% on April 13, 2013, a little less than one month after the AB settlement and 4 months after the second loan was taken out required approximately $13,500.